Does payoff equity facilitate coordination? A test of Schelling's conjecture

Abstract

Starting from Schelling (1960), several game theorists have conjectured that payoff equity might facilitate coordination in normal-form games with multiple equilibria -the more equitable equilibrium might be selected either because fairness makes it focal or because many individuals dislike payoff inequities, as abundant experimental evidence suggests. In this line, we propose a selection principle called Equity (EQ), which selects the equilibrium in pure strategies minimizing the difference between the highest and smallest payoff, if only one such equilibrium exists. Using a within-subjects experimental design, furthermore, we study the relative performance of the equity principle in six simple 2x2 coordination games.Overall, we find that Equity explains individual behavior better than a large range of alternative theories, including theories of bounded rationality and several other equilibrium selection principles. Further, a classification analysis suggests the existence of two main groups of players: (i) players who tend to play as Equity predicts, and (ii) a miscellaneous group of players who either go for the risk dominant equilibrium or act in a boundedly rational manner. This heterogeneity seems to be behind most of the coordination failures that we observe.Keywords: Coordination; equity; experiments; inequity aversion; level-k thinking; risk dominance.

Collapse. Institutional Decline and Breakdown, Its Endogeneity and Its Asymmetry Vis-á-Vis Emergence: A Theoretical Frame

“…But distributional aspirations for individual higher relative positions usually dominate over instrumental values for higher performance of the socio-economy. And interestingly, the more distributional aspirations dominate, the less socially mobile the society, and the worse overall performance will usually become (already, e.g., Veblen 1899, on the unavailing positional struggle in predatory societies), which is also empirically well analyzed nowadays (e.g., Torgler, Schmidt, Frey 2006;Wilson, Ostrom, Cox 2013;Kesternich, Lange, Sturm 2014;Krockow, Pulford, Colman 2015;López-Pérez et al 2015;Nishi et al 2015;Sun 2016;Furman 2017). Finally, long historical evidence of the relevance of inequality as a cause of socio-economic decline and collapse is also considerable (e.g., again, Turchin 2003;Goerner 2016).…”

When a compromise gets compromised by another compromise

“…11 For examination of the formal structure that can lead to such focal selection see for example, Als-Ferrer and Kuzmics (2013), Sugden (1995) or Crawford and Haller (1990). For empirical evidence that people use focal points for coordination in many diverse situations see for example, He and Wu (2020), Sitzia andZheng (2019), Lopez-Perez, Pinter, andKiss (2015), Parravano and Poulsen (2015), Pope, Pope, and Sydnor (2015), Abele, Stasser, and Chartier (2014), Jackson and Xing (2014), Bosch-Domenech and Vriend (2013), Isoni, Poulsen, Sugden, and Tsutsui (2013), Pogrebna and Blavatskyy (2009) or Knittel and Stango (2003). 12 Let us note that in both He and Wu (2020) and Jackson and Xing (2014) the sum of the two players' payoffs was lower in the Compromise option than for the asymmetric pure-strategy Nash equilibria.…”